Denver-Julesburg (D-J) Basin-focused Prairie Operating needs to increase its production by 69% in the second half to meet its 2025 minimum projected average of 24,000 boe/d.
The added growth is due to that first-quarter production average of 3,289 boe/d; it picked up fewer barrels from its D-J Basin acquisition from Bayswater Exploration & Production upon closing, said Ed Kovalik, chairman and CEO.
The deal at closing was for $483 million in cash, $15 million in escrow and 3.7 million shares, which were worth about $4.21 each at the time.
The original deal had been for $603 million, consisting of an undisclosed sum of cash and 5.2 million shares, which were worth $8.64 each at the time.
The deal had been based on Bayswater’s roughly 26,000 boe/d of D-J production as of Dec. 1, Kovalik said in an Aug. 12 investor call.
The property’s well decline rate is 20% a year, he added.
Prairie’s second-quarter production averaged 21,052 boe/d, a 540% increase from the first quarter. The output is about 50% oil and 24% NGL.
“What we really had is just an approximately 60-day delay to starting the ramp-up,” Kovalik said.
“But the ramp is very much well on its way with great results from our drilling and completion execution, so we have no reason to believe we're not going to accomplish these kinds of numbers.”
‘The right number’
But analysts on the call said the numbers didn’t make sense.
Leo Mariani, an analyst with Roth Capital, noted Prairie reported the Bayswater deal came with 25,700 net boe/d.
“Sounds like that really wasn't the right number. It was something significantly lower than …[what] was added,” Mariani said.
“Maybe that's some kind of old number from several months before and the asset would've been declining for several months.”
Kovalik said the announced figure was correct on the deal’s effective date of Dec. 1.
Prairie had reported in the Feb. 7 announcement that the property came with “approximately 26,000 boe/d.”
Mariani responded that, “if I'm doing the math right here, it looks like you guys need to average around 36,000 boe/d in the second half of 2025 to get to the lower end of your guidance,” which is a 2025 average of between 24,000 boe/d and 26,000 boe/d.
The new guidance is down from the 29,000 boe/d to 31,000 boe/d Prairie expected in its Feb. 7 deal announcement.
“Given that you were at 21,000 [boe/d] in the second quarter, that would be a heck of a ramp,” he said.
Kovalik said Prairie is putting 35 gross wells into sales this year. Nine were turned online in the first half.
“So you will see a pretty significant ramp through the [third quarter] and [fourth quarter] with a materially higher exit rate of production than we stated is our average annualized production,” Kovalik said.
Mariani wrote in an investment note after the call, "We think it may be difficult for Prairie to achieve its 2025 production guidance …. We are currently modeling 21,075 boe/d in 2025, which is 4,000 boe/d below the midpoint of the company's guidance.”
Charles Meade, an analyst with Johnson Rice, also expressed surprise, noting Prairie’s second-quarter output was less than what was expected from the Bayswater property.
Kovalik said the property’s 20% decline rate meant that the 26,000 boe/d on Dec. 1 became about 4,000 fewer boe/d since then.
He added that the delay in closing the deal resulted in bringing fewer wells online so far this year, “but the ramp trajectory is the same. Nothing's changed there.”
When announced Feb. 7, the deal was expected to close later that month. It closed on March 26 instead.
Metrics
The Bayswater property came with 29,000 net acres, more than 350 operated locations and 78 MMboe of proved reserves in Weld County, Colorado.
Including the property, Prairie’s total leasehold is 65,000 net acres. Well locations total more than 600 and proved reserves are 100.3 MMboe, 70% liquids, according to the company.
Kovalik said in the Aug. 12 call: “This deal was a pivotal milestone for our company. Successfully executing a transaction valued at over $600 million with a market cap under $200 million is a powerful validation of our team's ability.”
Prairie has a $1 billion bank credit facility with $387 million drawn as part of closing the Bayswater stock-and-cash deal. The sole participant of the credit had been Citibank, but Bank of America and West Texas National Bank joined since the first quarter.
Prairie’s liabilities total $600 million.
The company’s market cap was $148 million at the time of the Aug. 12 call, with shares trading at $3.38.
Greg Patton, Prairie’s CFO, said the E&P plans to eventually scale to 100,000 boe/d.